geezer,
The engine came with no filter and the oil circulated in the block with the oil filter outlet/inlet plugged. When a filter is installed a bypass inside the filter-line hole in the block is removed or shifted. Once an oil filter is properly installed on a '58-'62 261 engine, if you plug the oil filter lines the oil no longer circulates in the block (and you lose the engine very rapidly).
Thus if you never had an oil filter on a '58-'62 261 engine, there is no problem with plugged oil filter line holes. If you ever had an oil filter on a '58-'62 261, never plug the filter-line holes (if for some reason you need to remove the full-flow oil filter assembly, it is OK to run a line from one hole to other).
Maybe someone else can offer a better explanation.
Tim
